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Sunday, 28 June 2015 17:05

Community Shores Bank seeks $6.4 million in stock offering

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Heather Brolick Heather Brolick COURTESY PHOTO

Community Shores Bank Corp. will seek to raise $6.4 million in needed capital in a stock offering to existing shareholders that would go to pay off debt, maintain operations and improve its capital position.

If successful, the stock offering would bring the Muskegon-based Community Shores into compliance with capital requirements of federal regulators and return the bank to a “well-capitalized” status.

President and CEO Heather Brolick, in an email response to MiBiz, deferred comment on a regulatory filing outlining the proposed stock offerings until after the U.S. Securities and Exchange Commission declares it effective.

Like many banks, Community Shores was hit hard by the recession as loan losses led to deep operating losses. The bank has been seeking additional capital to comply with a 2010 consent order with federal regulators to improve operations and meet certain capital ratios. As operations improved and profitability returned in 2012, the bank met all of the provisions of the agreement, except for the capital requirements.

The bank would use proceeds from the stock offering to pay off $1.28 million borrowed in 2013 from 1030 Norton LLC, a company controlled by three current directors and one former director, plus five other businessmen.

In 2013, Community Shores borrowed $1.28 million from 1030 Norton LCC and used part of the proceeds to pay off a $5 million loan that was in default from Fifth Third Bank, which settled the debt for $500,000, according to financial reports filed with the SEC at that time. The loan was due in January 2011 and, with interest, had grown to $5.7 million by the time it was settled.

Another $625,000 from the stock offering would go to pay off deferred interest on trust preferred securities, and $4.1 million would go toward needed working capital, according to the preliminary prospectus.

Directors at Community Shores “considered several alternative capital raising methods prior to concluding that the rights offering was the appropriate option under the current circumstances,” states the June 25 preliminary prospectus filed with the SEC. “We believe that the rights offering will strengthen our financial condition by generating cash to meet the interest obligations due on our (trust preferred securities), provide capital support for the bank to increase its regulatory capital levels, and relieve the company of its senior debt.”

Community Shores, founded in 1999, has three offices in Muskegon County and one in Grand Haven in neighboring Ottawa County. The bank had total assets of $190.8 million as of March 31. Last year, it ranked fourth – behind three larger competitors – in the FDIC’s 2014 Summary of Deposits for the Muskegon County market with a market share of 11.6 percent.

The corporation reported net income of $4.3 million in 2014 and $31,515 for the first quarter of 2015.

In the preliminary prospectus, Community Shores indicated it faces potential difficulty ahead if it’s unable to raise additional capital.

In listing risk factors associated with the proposed stock offering, Community Shores said it had cash and cash equivalents of $245,000 at the end of the first quarter. As of the June 25 filing, “its cash and cash equivalents could be exhausted, unless it is able to access additional funds through capital raising efforts or other funding sources.”

“If Community Shores Bank Corporation’s cash and cash equivalents are exhausted, it would be unable to meet its financial obligations as they come due, rendering Community Shores Bank Corporation insolvent,” states the filing’s section that explains risk factors. “If Community Shores Bank Corporation were to become insolvent, it could be subject to voluntary or involuntary bankruptcy or similar insolvency proceedings and its business, financial condition and results of operations would be materially and adversely affected.”

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